First Mover Asia: Crypto Sell-Off Due to Fed Hawkishness, Possible Jump Dump of ETH, Says QCP Capital; Cryptos Decline Slightly in Monday Trading

Crypto asset trading firm QCP Capital will be eyeing remarks later this week by U.S. central bank Chair Jerome Powell for their potential effect on digital asset markets.

AccessTimeIconAug 22, 2022 at 10:50 p.m. UTC
Updated Nov 14, 2022 at 6:16 p.m. UTC

Shaurya is an analyst/editor for CoinDesk's markets team in Asia.

James Rubin is CoinDesk's U.S. news editor based on the West Coast.

Good morning. Here’s what’s happening:

Prices: Bitcoin and ether fall slightly as investors fret over monetary policy and macroeconomic uncertainty.

Insights: Crypto asset trading firm QCP Capital blamed the recent crypto sell-off on Federal Reserve hawkishness and Jump Capital's possible jettisoning of ETH.

Catch the latest episodes of CoinDesk TV for insightful interviews with crypto industry leaders and analysis. And sign up for First Mover, our daily newsletter putting the latest moves in crypto markets in context.

Prices

Bitcoin (BTC): $21,216 −1.7%

Ether (ETH): $1,588 −1.9%

S&P 500 daily close: 4,137.99 −2.1%

Gold: $1,749 per troy ounce +0.1%

Ten-year Treasury yield daily close: 3.04% +0.05


Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.

Bitcoin Declines; Ether Falls, Although Investor Interest Is Reappearing

By James Rubin

Bitcoin remained firmly above $21,000 on Monday afternoon as investors continued their anxious fretting over coming remarks by U.S. Fed Chair Jerome Powell and the same macroeconomic uncertainty that has engulfed markets of all stripes for almost a year.

The largest cryptocurrency in market value was recently trading at about $21,100, down roughly a percentage point over the past 24 hours. BTC has dropped 10% over the past five days after the release of July's Federal Open Market Committee (FOMC) meeting suggesting the bank would maintain its current inflation prescription of 75-basis point, interest rate hikes. Powell is widely expected to signal the central bank's intent in a speech at the Fed's annual Economic Symposium in Jackson Hole, Wyoming, later this week.

"Bitcoin momentum has evaporated as risky assets soften ahead of the Jackson Hole Symposium," Oanda Senior Market Analyst Edward Moya wrote in an email. "Too much of Wall Street expects inflation to take two years or longer for the Fed to get inflation under control."

Yet, Moya added that bitcoin weakness was "not matching the selling pressure hitting stocks ... a sign that investors are not ready to see prices retest the June lows."

Ether offered a two-pronged tale on Monday. The second-largest crypto by market cap was recently changing hands below $1,600, a more than 2% drop that left ETH at its lowest level in nearly three weeks amid investor concerns that venture firm Jump Capital was dumping the token. But as CoinDesk's Jimmy He wrote, a report by data provider Kaiko found that money was flooding back into the ETH futures market on Monday. “As the price dipped below $1,600, we observed a significant spike in open interest,” Kaiko noted.

Despite ether's recent drop, Arca Chief Investment Officer Jeff Dorman remained optimistic about its future pricing, saying in his weekly Two Satoshi newsletter that worries about it were overblown. While “long ETH” is certainly a crowded and telegraphed trade, it is likely still one of the best risk/reward investment opportunities in digital assets right now," Dorman wrote.

Other altcoins were largely in the red on average trading volume, with SOL and SAND recently off more than 6% and 5%, respectively.

Equity markets that have largely correlated with crypto prices suffered throughout the day from the same concerns plaguing crypto markets. The tech-focused Nasdaq and S&P 500 both sank over 2%, and the Dow Jones Industrial Average (DJIA) nearly as much as markets returned to the more risk-averse climate from earlier in the summer.

Moya noted that bitcoin could drop below $20,000 support if the dollar, which has been gaining strength, continues on this course. "Bitcoin may have some defending the $20,000 level, but it may be tough for that level to hold if king dollar continues to appreciate leading up to Fed Chair Powell’s speech at the Jackson Hole Symposium," he wrote.

Biggest Gainers

Asset Ticker Returns DACS Sector
Cosmos ATOM +1.8% Smart Contract Platform

Biggest Losers

Asset Ticker Returns DACS Sector
Solana SOL −4.9% Smart Contract Platform
Shiba Inu SHIB −4.2% Currency
Decentraland MANA −4.2% Entertainment

Insights

The Roots of the Current Crypto Sell-Off

By Shaurya Malwa

Crypto markets took a beating over the weekend as the Merge-induced ether rally fizzed and general “risk-off” sentiment drove prices lower – with futures seeing over $800 million in liquidations since Friday.

Ether fell 25% over the past week following a nearly month-long rise. DOGE and SHIB fell over 15% on Monday, while tokens powering layer 1 blockchains Avalanche, Polkadot and Solana saw declines of as much as 12%.

In a Telegram broadcast on Monday, Singapore-based QCP Capital blamed two factors, the U.S. central bank's continued monetary hawkishness, a possible Jump Capital sell-off, for the slide in the absence of a specific trigger, adding it expected markets to continue to trade sideways over the coming weeks.

“Fed officials have been actively pushing back on the dovish narrative in the market,” QCP traders said. “This has led to equities stalling and trading lower, yields drifting higher and [the U.S. dollar] rallying across the board.”

“Chatter about Jump dumping a large amount of ETH ahead of the Merge has contributed to the rush to take profit on ETH longs,” the firm added, referring to prominent crypto trading firm Jump Crypto.

QCP traders added they saw “significant profit taking” that ultimately led to liquidations of levered long positions that built up over a strong month-long rally, the effects of which were seen “especially in ether” which has rallied 130% in the past month.

The firm said it would be watching Federal Reserve Chair Jerome Powell's speech at the Jackson Hole economic symposium in Wyoming Friday for its potential impact on markets.

After the release last Wednesday of the Fed’s July minutes, the consensus among central bank observers is that Powell will signal additional, steep interest rate hikes in his symposium remarks, with some traders stating that bitcoin technicals have flipped bearish and that the largest crypto by market cap could see declines ahead, as CoinDesk reported, with some traders stating that bitcoin technicals have flipped bearish and that the

Important events

8:30 a.m. HKT/SGT(12:30 a.m. UTC): Jibun Bank manufacturing PMI (August preliminary)

CoinDesk TV

In case you missed it, here is the most recent episode of "First Mover" on CoinDesk TV:

The crypto price slide last week suggested a bearish trend to analysts. But are there any bright spots? CoinDesk Indices' new report shows how major sectors are performing within the broader crypto markets. CoinDesk Indices Managing Director Jodie Gunzberg joined "First Mover" to discuss. Also, former CFTC Chairman and Harvard University Research Fellow Timothy Massad discussed his new paper on stablecoin regulation, and Kim Grauer of Chainalysis had an update on crypto crime.

Headlines

Seven S. Korean Brokerages Plan to Start Crypto Exchanges Next Year: Report: Authorities in the country have trending towards strict oversight since the terraUSD collapse.

South Korea Plans to Tax Crypto Airdrop Recipients: Report: The government said crypto airdrops count as gifts under tax legislation.

Morgan Stanley Says Tightening in the Crypto Market Has Paused: While the market cap of stablecoins, an indicator of crypto liquidity, has stopped falling, demand for leverage has yet to start recovering, the bank said.

Bitcoin's 10% Weekly Drop Puts Bears in Control Ahead of Jackson Hole Symposium: Powell will skew on the hawkish side at Jackson Hole, analysts said.

Popular Uniswap Frontend Blocks Over 250 Crypto Addresses Related to DeFi Crimes: The move comes shortly after the U.S. government placed sanctions on privacy mixer Tornado Cash, prompting other decentralized finance developers to take protective measures.

Longer reads

It Doesn't Matter If They're Wrong, Central Bankers Set Guidance for Crypto, Too: Central bankers seem to have no clue where inflation is headed in the longer term, but markets are taking every clue they get from the Federal Reserve.

Said and heard

And to the person, company or group that donated 47BTC ... Stepping up like that, with no desire for clout or recognition, just wanting to help, without anyone knowing ... that is extremely #bitcoin. Love you, my anonymous brother(s)/sister(s). 🧡 (@hodlonaut) ... "9/ In terms of direction, we continue to expect the markets to trade sideways in the near term. With that said, we have had a negative risk reversal position on (long puts vs. short calls) which means we get longer downside vol if spot moves lower." (@QCPCapital)

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CoinDesk - Unknown

Shaurya is an analyst/editor for CoinDesk's markets team in Asia.

CoinDesk - Unknown

James Rubin is CoinDesk's U.S. news editor based on the West Coast.

CoinDesk - Unknown

Shaurya is an analyst/editor for CoinDesk's markets team in Asia.

CoinDesk - Unknown

James Rubin is CoinDesk's U.S. news editor based on the West Coast.